operator

(Operator Instructions) Following the prepared remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded for replay purposes. At this time, I'd like to turn the call over to Kate Scolnick Vice President, Investor Relations. Please proceed Kate.

During today's call we will review the highlights from the December quarter and we will provide the company outlook for the third fiscal quarter 2015. We will refer to non-GAAP measures, which are reconciled to GAAP figures in our supplement, and after that we will open up the call for questions. We're planning for the call today to go approximately half an hour and we will do our best to accommodate your questions in that time frame.

(Cautionary Forward-Looking Statements)

I would now like to turn the call over to Steve Luczo. Please go ahead.

Steve Luczo

Thank good morning everyone and thank you for joining us today. Seagate demonstrated strong financial performance in the December quarter, achieving revenues of $3.7 billion and on a non-GAAP basis gross margin of 28.2% net income of $452 million and diluted earnings per share of $1.35.

Our results this quarter reflect revenue in line with our expectations and sequential margin improvement. We had record store shipments of 61.3 exabytes up 17% year-over-year with average gigabytes per drive for the quarter increasing sequentially and continuing to average over one terabyte per drive. Cash flow generation was again strong in the December quarter.

Unidentified Speaker

and we achieved $670 million in operating cash flow and $455 million in free cash flow excluding the partial payment for the arbitration award from Western Digital of $773 million. Our non-GAAP operating expenses were $546 million, slightly lower than our expectations due primarily to expense control around the core business and commensurate with the revenue growth.

Capital expenditures were in line with our expectations and inventory both internally and externally are within manageable levels. Our balance sheet remains healthy and we ended the quarter with $3.3 billion in cash and cash equivalents. We raised approximately $500 million in debt and retired approximately $375 million in principal of higher cost up this quarter.

Effectively staggering and extending our debt maturities, we believe we are the first hi-tech triple B-minus company to issue a 20-year coupon, which is a testament to the markets confidence and our management team, the strength of our technology portfolio and our financial and business policies.

Turning to our outlook while we are generally optimistic about calendar year 2015 in terms of the demand for storage and overall economic activity especially that of the United States. We are tempered